Is the DOW going to to over-correct?

Question

Causing the market to crash? Many technicals show that it will in 2007. What do you guys think?

What do you guys and gals think? Sorry.

Answer 1

No one can predict the future, but if you'd like my opinion, I'll be glad to share. :-)

No, absolutely not! There's a correction that's a bit overdue, but the rising channel that the DOW's been in looks very strong and has been moving nicely.

That said, we'll probably have a pullback, not unlike we had last May. How cool would that be for all those new buying opportunities eh?

However, despite some selling off, I think the year will finish up.

On the market's side is history. This is the 3rd year of the presidential cycle. And although the past is no guarantee of the future, going back to 1940, the market has been up 100% of the time in this particular year. Yes, 100% of the time.

That's my 2 cents. :-)

Answer 2

What many people fail to realize is that there are bear market rallies. Yada stated that since 1940, the presidential cycle has been 100%. Will it materialize in 2007? It sure could. But it's interesting that he used 1940 as the beginning date, since the U.S. from WWII to today has experienced the greatest and longest running economic expansion. I don't know much about the presidential cycle, but it would seem to me that in order to get the truest picture possible, one would need to look at the cycle data prior to WWII. It's basically optimizing your data to say that the cycle has been 100% during the greatest economic expansion this country has ever experienced. Do markets over-correct? They certainly do. For instance, in 1929, the market lost 89% of it's value and lost all of the gains in the run up from the beginning of that bull to 1929.

Many poster feel there can not be a crash? Why not. The crash of '29 was only 77 years ago - I know people that are alive today that remember it, so it's not ancient history. Many have been lulled into the fallacy that modern technology will prevent a crash from ever happening. Yeah? They said the Titanic was unsinkable and it lies at he bottom of the North Atlantic today.

Albert Einstein said, "Two things are infinite; the Universe and Human Stupidity, and I'm not sure about the Universe". I've watched at the indices have made huge advances (just like they did in the 1920's), I've watched as people took out loans, mortgaged their houses to buy into equities (just like in the '20s), I've watched as the number of new mutual funds grew exponentially (just like their counterparts did in the 1920's), I've watched all logic go out the window as people bought up shares for no good reason other than it the fact it had .com after it's name (as logic flew out the windows in the 1920's). I've watched the news commentators say we've entered a new era and that the technology of computers would keep this market going on ad infinitium (just as the news commentators said we'd entered a "new era" and the new technologies of the automobile would keep the markets going on ad infinitum). I have watched as the savings rate in the U.S. dip into the negative range for the first time since - guess when - the 1920's. The last time the savings rate was this low was prior to the crash and great depression. People today are pooh-poohing a market crash, just as they did in the 1920's. George Santayna said, "Those who do not learn from history are condemned to repeat it".

The same types of things taking place before the great crash are happening today - what makes us think that history WILL NOT repeat itself. Even though technology advances, goods may change, etc. the one thing that remains constant is human nature. Do not think for one second that if a shock hits the market that panic selling won't ensue and drive the market into the ground.

Am I expecting a correction? No, I'm expecting a crash. Many here will think I'm an idiot - so be it. But not market can keep pushing on like it has, especially in the U.S. that's running huge budget, trade and current account deficits, with a national debt the size of Mt. Everest, a deflating housing bubble, and a currency that's on the verge of crisis. Already, many countries are looking to move away from dollars. OPEC is looking at switching oil sales from dollars to euro's. Some OPEC nations have recently dumped in excess of $10 billion in their U.S. Treasury holdings because they are losing faith in the dollar. The U.S. Dollar Index is now again below 84. Just one shock could trigger panic selling of the dollar and with the world losing faith in the dollar, that is a very real possibility. Such a panic selling would virtually force the fed to raise rates substantially to stem a dollar crisis. In the 1970's, the U.S. was on the verge of a dollar crisis and inflation running rampant, that's why Volker raised interest rates to nearly 20%. How do you think the stock market would react today to a rate increase in the double digits? Remember, in the 1970's we were a creditor nation, today, were are the largest debtor nation.

History again, M&A activity is at an all time high, that last time it was this high was in 2000, just before the stock bubble popped. And if you look at history, bear markets move in phases. In 1929, after the initial sell off, the markets regain 85% of it's losses; then the other shoe dropped. Today, the Dow dropped to 7200 and regained all of it's losses and then some. In the 1920's the U.S. was screaming "Protectionism". Today, the same mantra of protectionism is again being chanted.

I remember reading one time a quote that said something along the lines of, "The masses are incapable of learning and repeat the same mistakes as early as that of the prior generation". I consulted with several people I know that are psychiatrists/psychologists and they concurred with the above statement.

Interesting the similarities of 1929 to today, yet we believe that we are so advanced that we have conquered the business cycle and can never again have a crash. I believe that is a belief system that is going to send many people to the poorhouse.

I believe we are heading for a crash that's going to make 1929 look mild in comparison and will take the Dow to levels it hasn't seen in years.

EDIT:

The reason I brought up the dollar is that you can not look at market irrespective of other markets, they are inter-related. A sell of in the markets would indeed affect the dollar and a dollar crisis would be catastrophic on the stock market. Can one look at the financial health of the U.S. and say the stock market isn't going to be affected? Heck, just recently, Bernanked testified that if steps aren't taken, that we'll soon face a financial crisis here in the U.S. I don't see the gov't doing anything to correct the current financial situation of the U.S. But, they're still borrowing $2.4 billion per day to finance gov't operations.

Answer 3

Technical analysis is worthless so no basis to work off. Market always is over-optimistic then over-pessimistic as momentum rules many weaker minds. Forget worrying about charts & just be ready. If starts down can short, buy gold, move money to better areas of the world for investing. Just act - don't think & wonder

Answer 4

The Dow is still reasonably priced. I'm sure there will be corrections, but I think it has a lot of up side left.

Answer 5

It's going to over correct, but since the "dumb money" is tied up trying to pay those no interest loans, it might be a 10%-15% drop that will itself correct by the end of the year.

Answer 6

We are due for a downturn. I am putting dsome funds into cash in anticipation of this.

What goes up must come down!

Answer 7

the DOW will correct for sure, will it over-correct no ones
know

Answer 8

It is going up pretty high, but I don't think it will crash.

Answer 9

Chartists are morons. I met a former chartist yesterday he said "Would you like fries with that sir?"